BLOG: IT cost management doesn't mean cost reduction

When CEOs talk about IT cost management, they don't mean they want to spend less on IT. They just want to spend smarter.

I recently misinterpreted some CEO cost-speak. The enormous gap between what I thought I was hearing and what the CEOs were actually saying is tremendously illustrative and well worth looking at.

I was involved, albeit tangentially, in a dozen executive searches for new CIOs. All of these searches were being led by CEOs of global, brand-name, Fortune 300 companies. In fact, nine of the companies were in the Fortune 100. In my experience, such leaders are enlightened and appreciative of the value of IT.

That's why I was surprised — shocked, actually — to find that every one of these CEOs ranked IT cost management among the top three capabilities they were looking for in their next CIO. I couldn't understand it. How could that be when just about everything one reads in the business press and from subscription research firms claims that growth is the primary focus for top companies' leaders? What was going on?

Could it be that, against astounding odds, I had stumbled into a thicket of Luddites masquerading as modern leaders? No; the job requirements crafted by these CEOs were not outliers. I talked to three of the CIO communities I manage and learned that IT cost management is at or near the top of most CEOs' expectations of their CIOs.

But no. Nothing could be further from the truth. In reality, the CEOs were looking for someone who deeply understood IT cost drivers and the relationship between optimized IT infrastructure and innovation. In other words, the kind of cost management these CEOs had in mind involved the CIO managing an updated and future-looking IT platform as a possible source of funding for new initiatives.

Quite simply, I had equated cost management with cost reduction. But CEOs don't want to spend less on IT; they want to spend smarter on IT. CEOs see new technology as a way to lower costs and increase competitiveness. They have come to realize that IT is the new basis of competition and that without an up-to-date technology platform, they can't compete. They are, it would seem, channeling Andrew Carnegie.

Carnegie, the great steel magnate of the 19th century, believed in investing aggressively in the latest technology, as business historian H.W. Brands relates in The Reckless Decade: America in the 1890s. Carnegie repeatedly ripped out incumbent technology in a ruthless pursuit of lower costs. He believed that every month his company used outdated equipment was a month forever lost to inefficiency. Upon hearing how British steelmakers prided themselves on wringing the last ton of steel out of dated equipment, he scoffed: "That is what is the matter with the British steel trade. Most British equipment is in use twenty years after it should have been scrapped."

Carnegie was right. During the 1880s, costs were halved, output doubled and profits rose.